Owners of websites, online services or mobile applications (apps) that can be accessed or used by California residents should ensure their compliance with the new amendments to the California Online Privacy Protection Act of 2003 (CalOPPA) by the law’s January 1, 2014 effective date. The borderless nature of the Internet makes this law applicable to almost every website or online service and mobile application. Accordingly, companies should review and revise their online privacy policies to ensure compliance with the new law and avoid potentially significant penalties.

Previously, CalOPPA required the owner of any website or online service operated for commercial purposes (an “operator”) that collects California residents’ personally identifiable information (PII) to conspicuously post a privacy policy that met certain content requirements, including identifying the types of PII collected and the categories of third parties with whom that information is shared. The new law requires that companies subject to CalOPPA provide the following additional disclosures in their privacy policies:

How an operator responds to “do not track” signals from Internet browsers and any other mechanism that provides consumers a choice regarding the collection of PII about an individual consumer’s online activities over time and across third-party websites and online services. A company may satisfy this requirement by revising its privacy policy to include the new disclosures or by providing a clear and conspicuous hyperlink to a webpage that contains a description of any program or protocol the company follows to provide consumers a choice about tracking, including the effects of the consumer’s choice.

An affected company must disclose to users whether third parties may collect PII about a user’s online activities over time and across different websites when a consumer uses the operator’s website or online service. However, an operator is not required to disclose the identities of such third parties.

The California law does not require that operators honor a user’s “do not track” signals. Instead, operators must only provide users with a disclosure about how the website or mobile app will respond to such mechanisms. “Do not track” mechanisms are typically small pieces of code, similar to cookies, that signal to websites or mobile apps that the user does not want his or her website or app activities tracked by the operator, including through analytics tools, advertising networks, and other types of data collection and tracking practices. Further, the Privacy Enforcement and Protection Unit of the California Office of the Attorney General recently stated that the required disclosures should not be limited to tracking simply for online behavioral advertising purposes, but those disclosures must extend to any other purpose for which online behavioral data is collected by a business’s website (e.g., market research, website analytics, website operations, fraud detection and prevention, or security).

A violation of the law can result in a civil fine of up to $2,500 per incident. The California Attorney General maintains that each noncompliant mobile app download constitutes a single violation and that each download may trigger a fine.

Given that most company websites will have California visitors, companies should consider taking the following steps to ensure compliance with the CalOPPA amendments by January 1, 2014:

Identify the tracking mechanisms in place on your company’s websites and online services, including (a) the specific types of PII collected by the tracking mechanism and (b) whether users have the option to control whether and how the mechanisms are used and how the website responses responds to “do not track” signals by seeking input from those familiar with your website, including (i) technicians and developers who understand the mechanics of how the website operates, including how it responds to “do not track signals,” (ii) financial and marketing personnel who understand how user PII is monetized, and (iii) any other stakeholders who access or handle user PII.

Review the practices of any third parties that have the ability to track users on your website. To draft the new disclosures, you will need to understand how those third parties track your users and whether they are capable of doing so before or after the users leave your service.

Retain the prior version of the policy in your records, including the date on which each version was posted to the site. The new version should have an updated effective date to distinguish it from the previous version.

Expansion of California’s Data Breach Notification Requirements

Under another new law taking effect on January 1, 2014, California will expand its data breach notification requirements by adding new types of information to the definition of “personal information” under California Civil Code §§ 1798.29 and 1798.82. The new law requires notification if a California resident’s personal information is compromised, and, as with CalOPPA, the breach notification requirements apply regardless of the location of the organization that sustains the breach. Therefore, to the extent that your business collects and retains California residents’ PII, then the amended California breach notification law would apply.

Previously, the California law required notification of a data breach in the event of the unauthorized access to or disclosure of an individual’s name, in combination with that individual’s (i) Social Security number, (ii) driver’s license or California ID number, (iii) account, credit or debit card number, together with a security or access code, (iv) medical information, or (v) health information, where either the name or the other piece of information was not encrypted. Under the new definition, “personal information” will also include “[a] user name or email address, in combination with a password or security question and answer that would permit access to an online account.”

Accordingly, if your business or organization collects this type of information, then it should consider undertaking the following proactive measures to reduce the risk and magnitude of a potential data breach:

Periodically and systematically delete nonessential personal information. By deleting obsolete PII and other sensitive information, businesses can significantly reduce the risk of a breach. Retaining such obsolete legacy PII serves no business purpose, but only adds unnecessary exposure and potential liability.

Conduct a PII inventory and perform a risk assessment of your security measures. Identify what PII is being collected by your organization, where it is retained, who has access to the PII and the security measures to protect the PII. Ensuring that sufficient protections are in place may not prevent every incident, but they can reduce the possibility of an incident occurring in the first place and limit the disruption to your business if there is a breach.

Limit the disclosure of PII to third parties only when necessary to provide services or products. You can be equally responsible for a data breach notification if the person or entity who experiences the data breach was a third party who received PII from you. Any vendor or third party with whom you share PII should contractually represent and warrant that they have in place certain standards for protecting that information and agree to indemnify your company for any loss that results from a breach.

Please contact any Vedder Price attorney with whom you have worked, Bruce A. Radke +1 (312) 609 7689, or Michael J. Waters at +1 (312) 609 7726 or Matthew Cavanaugh at +1 (312) 609 7727, should you have any questions.